Quick Update + Gold

The market remains stuck in the 1470 -1490 congestion zone. Yesterday the cash S&P500 index formed an inside day as the downward moving price pulse from 1523.57 ended at 1468.23. The price high of 12/11 is now a fractal. After the large move down after the Fed decision on Tuesday and another downtrending day Wednesday the market has paused (less price movement) on lower volume. Market participants have lost interest in the decline for at least the moment as we wait to see which way we break from the 1470 to 1490 (moving averages and inverse head and shoulders) “decision zone”.

As there has not been much new information in the price action all I can do is repeat from yesterday “As there are no definitive “sell” signals in my technical indicators I have to continue to believe that we will break upwards out of this support zone. I will keep the stop on the SPY Long position at 146.30.”

For grins I present my Elliott Wave count on gold.

In the Congestion Zone

Although a volatile day, the downward moving price pulse from 1523.57 continues. The cash S&P500 index formed a downtrending day on Wednesday but it wasn’t your orderly type of downtrending day. After an explosive opening that saw the index move to over 1511 (about a Fibonacci 34 points up from yesterday’s close) the bears took charge and sold the market off towards the December 4th pivot low. We then closed up on the day. Volume continued to increase but the facilitation of price declined. This combination is what Bill Williams calls a “Squat” bar. On December 5th I wrote about this type of bar saying “The last time this happened we ended up with a price fractal high on 11/30. Now we should be watching for a low.” In fact, December 4th was the price fractal low. Are we seeing another low made now?

I think the best way to view this is to use the area between 1474 and 1490 (moving averages) as the “decision zone”. We are in that zone now, making a collective decision on whether to move higher or lower. A break upwards above the congestion zone is bullish and vice versa. This congestion zone also contains the neckline of an inverse head and shoulders pattern. As there are no definitive “sell” signals in my technical indicators I have to continue to believe that we will break upwards out of this support zone. I will keep the stop on the SPY Long position at 146.30.

They Didn't Like the Fed Announcement I Guess

The Fed has spoken and the street has responded. As stated here yesterday the declining volume over the past few days was reason enough to expect a negative outcome from traders after the Fed decision. But what an outcome! A decisive break to the downside on much heavier volume. Price movement also increased and so we had a very bearish price/volume combination. The upward moving price pulse from last Tuesday’s price fractal low of 1460.66 ended at yesterday’s high of 1523.57.
The decline has brought us rapidly back into a broad area of support from 1470-1490. We are now testing both the neckline of the inverse head and shoulders pattern and the moving averages. As there are no definitive “sell” signals in my technical indicators I have to continue to believe that this market dip should be contained within the context of the developing uptrend from 11/26.

Of the price scenarios we had been following it is now clear that option (C) held sway. Now we have to see whether the market can hold the 1460 to 1471 area; which includes the previous fractal low, the red moving average and Gann 120 degrees down from yesterday’s high. I will keep the stop on the SPY Long position at 146.30.

Fed Day! (Again)

Although volume continues to fall ahead of today’s Fed pronouncement, the buyers ruled and we had another uptrending day in the cash S&P500 market. If the volume/price movement relationship is telling us anything it is that there is reason to be concerned for the immediate uptrend following the Fed announcement. That all said, the fact remains that the upward moving price pulse from last Tuesday’s price fractal low of 1460.66 continues.

There are no other changes to speak of this morning. From a technical perspective the market continues to show strength and so the next market dip should be contained within the developing uptrend from 11/26. Of the two price scenarios discussed Friday we still can’t rule out either, but if option (C) is to occur then the market should be declining by tomorrow.

Another new week, Another Fed Announcement

Although we had another uptrending day in the cash S&P500 market on Friday it was a much smaller range day. It was also a Reversal Day. A Reversal Day top is made when a new daily high is made but the close is below both the current open and previous close. Friday also had both lower volume and price movement as participants lost interest; most likely due to the impending weekend and upcoming Fed meeting. That all said, the upward moving price pulse from last Tuesday’s price fractal low of 1460.66 continues.

From a technical perspective the market continues to show strength despite Friday’s reversal day on weaker volume. The composite index has caught up to the RSI and so that potential negative is gone. We just may need to digest recent gains by “testing” the head & shoulders neck line we just broke through. That level is at 1486 today, which is smack dab in the middle of the short and intermediate moving averages. Remember also that 1490 is strong chart support.

Of the two price scenarios discussed Friday we can’t rule out either. They were:

A) If the price pulse low of 1460.66 marked a significant low then we should rally through this week into next without a pullback this week.

C) If 1488.94 was not significant then we are making a short term high now and we will pull back over the next few trading days.

I continue to favor scenario “C”. It also allows the market to hesitate and gyrate a bit into the Fed announcement this week. But there is not sufficient evidence to act upon. I will keep the stop on the SPY Long position at 146.30.

Weekend Report for December 9, 2007

The weekly chart of the cash S&P500 index formed an uptrending price bar this week. The upward price pulse from the recent 1406.10 low continues.

Last weekend I asked “Is wave “c” over at 1406?” My answer to that rhetorical question was “I think the weekly technicals are saying “yes”, but first we will have to see if resistance can be broken at the 1490 level.” Well we broke above that area on the daily chart and we are now battling resistance at around 1500 (red and blue moving averages on today’s chart) on the weekly chart. Even though we have popped above those moving averages I can’t say we have cleared through them. Anyways, back to our Elliott discussion.

As you know I have been of the opinion that we are forming a corrective pattern from the July high. Furthermore; I continue to believe that the pattern best fitting the weekly chart is a Contracting Triangle from the July high, with the move down from 1576 to 1406 as wave “c” of that correction. That would mean that we are now in wave “d” with an “e” wave decline to come. Important though is the fact that in such a pattern the “e” wave will end above the “c” wave low. This means that the correction low is in.

Tracking the “d” wave in real time will be a challenge for me. I do know that it will end below the “b” wave peak. But where? And when? A possible guideline to use is from Connie Brown’s book “Technical Analysis for the Trading Professional”. On page 222 she writes “Wave D …. Frequently forms a Fibonacci relationship relative to wave B.” We are at the 50% level now, where we are battling resistance with the moving averages as explained above.